Buy To Let Purchase
Investing in a Buy to Let property can be a sensible way to supplement your existing income and build future capital if the property value increases.
Getting a Buy to Let mortgage may seem like a minefield with all the industry changes over the past few years, however, at Medifinance Mortgages our team of experts have a deep understanding of this market and will be able to guide you through the process.
When purchasing a Buy to Let property, you will need at least a 20% deposit, although you are likely to find having a 25% deposit leads to a significant reduction in interest rates. You will also need to be able to fund Stamp Duty and Legal costs. When you purchase a second property you will need to pay a 3% surcharge in stamp duty as well as the normal stamp duty rates.
The amount you can borrow will predominately be determined by the amount of rental income the property can generate. The lender will typically take the amount you are looking to borrow and apply a “Stressed Interest Rate” to this (as an example the majority of lenders use 5.5%). They would then apply an “Interest Cover Ratio” (ICR) to allow for void periods, or additional costs such as tax and maintenance of the property, this can vary depending on the lender and your circumstances but is typically 145%. Dividing this figure by 12 calculates the required monthly rental income.
As an example;
£100,000 mortgage x 5.5% stressed interest rate = £5,500 x 145% ICR = £7,975 / 12 = £664 required monthly rental income.
There are many different variations of this calculation and it is important that you know before you apply that the rental income on the property is sufficient for the mortgage you require. There are also lenders that may be willing to consider your disposable income to help meet the required rental calculations if there is a shortfall.
Historically there were barriers to getting a Buy to Let mortgage such as needing to own your own residential property that you live in or earning a minimum amount. However, lenders have started to change their requirements to open up more options for clients including first time buyers and clients with little or no income.
There are also tax implications of owning a Buy to Let property and we would advise discussing your situation with an accountant ahead of purchasing a property. The amount of income tax you will pay will be impacted by the income you generate from the property and there will also be implications on Capital Gains Tax when you dispose of the property. Many people have turned to using a Ltd Company to hold the ownership of the property. This is a complex area and we advise a detailed discussion with an accountant.
The Buy to Let mortgage market is complex with vast array of different options and lenders to consider, including some who only operate through brokers. At Medifinance Mortgages we have access to the whole of the market through our experienced team who can help guide you through the process of purchasing your new Buy to Let
Buy To Let Remortgage
If your Buy to Let (BTL) mortgage is coming towards the end of a promotional rate or you are currently on a standard variable rate, then it makes sense to look at what options you have available to you. By ensuring you move to a new promotional rate, you could potentially save a considerable amount of money. Medifinance Mortgages can help you review the mortgage lender market to find the most suitable deal for you.
You may also want to raise some additional capital to fund another property purchase or for home improvements. Each lender has their own policy on what additional borrowing can be used for and we can guide you on what is acceptable if you would like to do this.
If you are considering selling your BTL property, you should think very carefully before moving on to a promotional rate that has Early Repayment Charges, which most products have. There are however a limited number of deals available without any Early Repayment Charges that we can help you with.
If you decide to contact us, you will be allocated a dedicated Medifinance Mortgage broker who will gather the information they need to assess your circumstances as well as check what rate your current lender is offering.
An advantage of staying with your current lender is it is very simple. There will be a small amount of paperwork to complete and it will not consume much of your time. In many situations there will be a financial saving if you switch lenders and we will provide you the information you need to make that decision. If we recommend that you stay with your existing lender we can, in most circumstances, complete the product transfer on your behalf and we will not charge you a fee for doing this.
If you decide to move lenders, then we will be able to handle the application on your behalf. As well as submitting the application, we will be able to guide you through the process and manage the re-mortgage through to completion. As well as having a dedicated mortgage broker you will also be allocated a Case Manager who will make sure the re-mortgage goes through smoothly. This includes keeping you fully up to date with progress, and liaising with the solicitors to ensure the legal process is completed smoothly
A good time to contact Medifinance Mortgages is 3 months before your current promotional period is due to end. If you are currently on a variable rate we’d recommend you contact us immediately.
Your property may be repossessed if you do not keep up repayments on your mortgage